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TMI Blog2019 (3) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. Celltick India, on 50-50 basis. For the present, the issue relating to characterisation of income is not being contested by the assessee as it has sought to challenge the untenability of the addition only on the basis of the proposition that once ‘arm’s length principle’ has been satisfied qua the relevant transactions, there can be no further profits attributable to the assessee in India even if it has a PE in India. While canvassing such proposition, assessee also does not bring into question the stand of the Revenue that there is a PE of the assessee in India. The point sought to be made by the assessee is that the compensation remaining with the Indian subsidiary, i.e. Celltick India, is adequate and justified on the basis of the Transfer Pricing analysis, and the same has been so accepted by the income-tax authorities in the case of Celltick India for the very same assessment year. According to the assessee, no further income could be attributable to it on account of its PE in India. In our considered opinion, the proposition sought to be canvassed by the assessee has the approval of the Hon'ble Supreme Court in the case of Morgan Stanley & Co. [2007 (7) TMI 201 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 12 of the India-Israel Tax Treaty; 4. erred in holding that the income received by the Appellant from provision of the software solutions for onward distribution to third party customers in India is taxable in India as 'royalty' income under the provisions of Article 12 of the India-Israel Tax Treaty without appreciating the fact that there is no 'use' or 'right to use' of the 'copyright' in the software solutions which is being provided by the Appellant to Celltick Mobile Media (India) Private Limited ('Celltick India') for onward distribution to third party customers in India; 5. erred in holding that the income received by the Appellant from provision of the software solutions for onward distribution to third party customers in India is taxable in India as 'royalty' income under the provisions of Article 12 of the India-Israel Tax Treaty without appreciating the fact the definition of the term 'royalty' under the India-Israel Tax Treaty is restrictive in nature as compared to the 'royalty' definition under the Act; Non-existence of a Dependent Agent Permanent Establishment ( DAPE') of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the gross revenues of the Appellant as being attributable to the DAPE in India, on an arbitrary and ad-hoc basis; 13. erred in attributing 50 percent of the gross revenues of the Appellant from third party customers in India to the DAPE without appreciating the fact that the said receipts are not attributable to the DAPE of the Appellant; 14. erred in attributing the profits of the Appellant without appreciating the fact that additional attribution of profits to the DAPE in India to the extent of 50 percent of the gross receipts of the Appellant from Celltick India would tantamount to total attribution of 75 percent of the total revenues to the DAPE in India; 15. erred in attributing the profits of the Appellant at 40 percent of the total gross revenues of the Appellant, on an arbitrary and ad-hoc basis; Incorrect application of the income tax rate on the alleged gross total income of the Appellant 16. erred in applying the incorrect income tax rate of 50 percent on the alleged gross total income of the Appellant, instead of the correct income tax rate of 40 percent as applicable to a foreign company; Wrong levy and computation of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights related to the software solution is admittedly owned by the assessee. In the return of income filed, assessee asserted that the receipts from provision of such software solutions earned from India amounting to ₹ 14,38,59,010/- would not be taxable in India either as Royalty or Fee for Technical Services or even as Business profits , in the absence of any PE in India. The Assessing Officer, however, was not convinced with the stand of the assessee. Insofar as the characterisation of the receipts is concerned, the Assessing Officer held that the receipts are in the nature of Royalty as the transactions constituted sale of copyrights in the article and not sale of copyrighted articles. The Assessing Officer further went on to hold that in terms of the arrangement with Celltick India, which was a 100% subsidiary, it could be construed that Celltick India was liable to be considered as a dependent PE of the assessee in India. Thereafter, the Assessing Officer proceeded to compute the income attributable to assessee s PE in India in order to quantify the income taxable in India. The Assessing Officer considered the facts and concluded that it was reasonable to consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or profits could be said to be attributable to the assessee on account of its agency PE in India. The aforesaid plea was sought to be supported by the judgments of the Hon ble Court in the case of Morgan Stanley Co. (supra) as well as in the case of E-Funds IT Solution Inc. (supra) . Emphasising the importance of the proposition that once arm s length principle has been satisfied, no further profits could be attributable to a person even if it has a PE in India, the learned representative also relied upon the judgment of the Hon'ble Supreme Court in the case of Honda Motor Co. Ltd. vs ADIT, [2018] 301 CTR 601 (SC) . Therefore, in the above background, the learned representative canvassed that notwithstanding other Grounds, on the aforesaid proposition itself, the action of the lower authorities in making the impugned addition to the returned income is untenable in law. 6. On the other hand, the ld. DR appearing for the Revenue has not disputed the factual matrix brought out by the learned representative, so however, he has relied upon the orders of the authorities below in support of the case of the Revenue. 7. We have carefully considered the rival submissions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case too, in the case of the Indian subsidiary, the transaction with the foreign assessee was accepted to be at an arm s length price. Accordingly, it was held by the Hon'ble Supreme Court that the arm s length principle stood satisfied and, therefore, no further profits could be attributable even if there existed a PE of the foreign assessee in India. In our considered opinion, the manner in which the proposition has been applied by the Hon'ble Supreme Court in the case of E-Funds IT Solution Inc. (supra) is clearly attracted in the present case too. In the present case also, the transactions of the assessee with its Indian subsidiary, i.e. Celltick India, have been found to be at an arm s length price by the income-tax authorities in the case of the Indian subsidiary, i.e. Celltick India for the instant assessment year. 8. In view of the aforesaid discussion, in our view, since the appropriate arm s length principle has been satisfied in the present case, nothing more would be left to be taxable in India by attributing any further income to the PE of the assessee in India. Therefore, the point raised by the assessee by way of Ground of appeal no. 11 is allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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